The paper examines the drivers of international production networks and vertical trade integration in an augmented gravity model that employs the newly developed Network Trade Index. Based on bilateral trade data among 75 countries from 1998 to 2005, the findings emphasize trade policy's role in facilitating network trade. For example, a 10% tariff reduction raises vertical trade by 6.2%, on average. Preferential trade agreements are found to significantly boost vertical integration.
- The Network Trade Index
- Vertical Gravity